A deposit is money kept in a bank account or with another financial institution that requires a transfer from one party to another. Additionally, a deposit can serve as security or collateral for the delivery of goods or services.
Key Takeaways
- A deposit generally refers to money held in a bank account.
- It can also mean funds used as security or collateral for goods or services.
- A demand deposit account, like a checking account, allows withdrawals at any time.
- A time deposit account usually requires the funds to remain for a specified period, or face fees for early withdrawal.
How a Deposit Works
A deposit involves transferring your money to another party, like when you move funds into a checking account at a bank or credit union. When money is deposited into a bank account, it can be withdrawn at any time, transferred to another person’s account, or used for purchases.
Business accounts, distinct from personal accounts, are tailored to the needs of businesses. They permit deposits and withdrawals but often come with different limits. Some business accounts even allow employees to deposit or withdraw funds and may offer night depositories for cash and checks after hours.
Often, a “minimum deposit” is required to open a new bank account. Depositing money into a checking account is a transaction deposit, meaning the funds are immediately available and liquid for use without delay.
The term deposit can also refer to funds used as security or collateral for a good or service delivery. For example, a brokerage firm might require an initial margin deposit to enter a new futures contract. Some bank accounts allow your money to earn interest, which adds a percentage of the account’s total at regular intervals. The compounding of interest can vary in rate and frequency, based on bank terms.
Types of Deposits 💼
There are two main types of deposits:
- Demand deposits: Conventional bank and savings accounts fall into this category. You can withdraw the money anytime without notice from a demand deposit account.
- Time deposits: These accounts, such as certificates of deposit (CDs), have a fixed time frame and often pay a fixed interest rate. They offer higher rates than savings accounts but require that the funds remain in the account for a set period.
Real-World Examples of Deposits
Deposits are often required for significant purchases like real estate or vehicles, where sellers set a percentage of the total price as a deposit. A down payment for a home is an example of this.
Renting an apartment, car, or other products typically requires a deposit, known as a security deposit. This deposit covers potential damages during the rental period, with refunds issued partially or in full, depending on the item’s condition at the end of the rental period.
FAQs
Does Every Deposit Made to a Bank Earn Interest?
No, not all bank deposits earn interest. It depends on the account terms. While many checking accounts don’t offer interest, most savings accounts and certificates of deposit (CDs) do.
Can I Make a Deposit Using a Check From Another Bank?
Yes, deposits can be made using checks from another bank. Most banks accept deposits in the form of cash, checks, money orders, or cashier’s checks. There may be a holding period if you’re using a check to open a new account.
When I Place a Deposit for Goods or Services, Do I Get the Money Back?
It depends on the agreement. In many rental contracts, a security deposit ensures there’s no damage to the rented property. The deposit can be refunded if the space or item is returned undamaged. In other cases, such as with purchases, a deposit may be used as a partial payment of the total balance.
The Bottom Line
A deposit typically involves transferring money to a bank account like a checking account. However, it also can mean placing funds with a business to secure goods or services like rentals.
Related Terms: collateral, checking account, bank of first deposit, business banking, night depository, minimum deposit, liquid assets, margin, interest, compound interest, certificate of deposit, down payment, security deposit.
References
- SoFi. “Guide to Minimum Deposits”.
- FINRA. “Understanding Margin Accounts”.
- Consumer Financial Protection Bureau. “What Is The Difference Between a Demand Deposit and a Checking Account?”
- InTrust Bank. “Time Deposits”.
- Cornell University. “Legal Information Institute”.
